For an industry that rarely gets big news, this was an awfully big week for VR. Unsurprisingly, all the important data points are related to the sole benefactor of the industry these days, Meta, which managed to raise the cost of entry to its VR ecosystem, finds itself in a new battle with the government of USA for virtual reality and announces that it had, again, spent a lot of money on its Reality Lab efforts this quarter.
The weirdest piece of news was definitely Meta’s seemingly unprecedented move to raise prices for the Quest 2 by $100. This is, again, a year-old headset that Meta has reportedly been selling at a loss to lure more consumers into the market. This steep increase brings the entry price from $299 to $399 and indicates that the company’s willingness to subsidize the headset to make it relevant has its limits.
This price rise is accompanied by record levels of inflation and a hostile stock market that has dealt a particularly heavy blow to Meta’s share price. The company’s shares are now trading below where they were 5 years ago and spending on Reality Labs has become a more pertinent concern for investors as the company’s revenue growth begins to fade.
Virtual reality and the metaverse are becoming very expensive endeavors for Meta. The company announced Wednesday that it had spent $2.8 billion on Reality Labs in the second quarter alone, a figure that shows the company’s metaverse dreams are more than just silly marketing pitch and remain a substantial financial gamble with few short-term advantages in an arena where many big tech giants appear to have scaled back their investment in R&D in recent years.
What’s worth remembering is why Meta followed the strategy of selling headphones at cost to begin with. This was not the company’s initial plan, the Rift headphones and their controllers were retailing for nearly $800 when they launched and it was only after years of price drops that the company was able to scale sales of the device. That was, of course, a piece of hardware that required a gaming PC and had close competitors at similar prices.
Fast-forward 5 years and there may still be a handful of headsets out there, but the cornerstone of headset growth recently seems to be pinned exclusively on the Quest 2, which is the lowest-cost entry point into the market. Rising mid-life technology hardware product prices certainly suggest a fundamental miscalculation and the company is less likely to repeat it.
As the company moves towards the launch of its “Project Cambria” headset which, according to Bloomberg, will be called the Quest Pro and rumors point to a $1500 price tag, it looks like the VR industry will be forced to compete in relative merits. of its ecosystem and justify something closer to the true cost of its hardware to consumers. This would be a big, sudden change for Meta and I wonder how big the user audience will be for a $1,500 headset in 2022, even one with a “pro” focus.
Meta’s efforts are not carried out entirely alone. Sony announced new details about its second-generation headset this week, and Apple has been investing heavily in the launch of a long-overdue mixed reality headset, a device that may cost upwards of $3,000 when it finally launches and will no doubt it will serve as an outlier in their suite of “Pro” products.
However, Apple seems poised to get a head start when it comes to acquiring new companies and products in the VR space. Meta’s efforts to spend big to win big in the metaverse met a rather worrying challenge on Wednesday when the FTC announced they were suing to block Meta’s purchase of VR developer Within, the studio behind the fitness app. VR Supernatural. One part of the deal, reportedly for more than $400 million, would be a pretty surprising rebuke of one of the VR industry’s only exit opportunities, during a time in the industry when revenue is hard to come by. get and virtual reality startups fail to gain much interest from investors.
After the better part of a decade since Facebook’s acquisition of Oculus, the VR industry is still totally as dependent on the Meta checkbook as ever. A public market downturn is forcing an adjustment in the firm’s infinite spending on the subcategory, and it is clear that there will be many second-order effects along the way.